Increased Gift Tax Exclusion for 2006

Gifting is an important estate planning mechanism, as it allows individuals to transfer assets tax-free while they are living, and lessen their exposure to estate tax upon death. This asset transfer technique became even more attractive in 2006 because the amount allowed to be transferred tax-free increased from $11,000 to $12,000 per gift.

An individual can now gift $12,000 of assets to another individual tax-free, and a husband and wife can jointly gift $24,000 tax-free. An unlimited number of gifts may be made each year, but individuals can only gift $1,000,000 tax-free over their lifetimes.

To illustrate, suppose a husband and wife have three children. They can jointly transfer $72,000 of assets per year by making tax-free gifts to their children ($24,000 per child). If the husband and wife make their gifts on December 31st, 2006 and again on January 1, 2007, they can jointly transfer $144,000 of assets tax-free at one time.